THESIS
2020
x, 60, 36 pages : illustrations ; 30 cm
Abstract
Essay I: The Real Effects of Mandatory Nonfinancial Disclosure:
Evidence from Supply Chain Transparency
I study whether and how mandatory nonfinancial disclosure affects firms’ real decisions
by leveraging non-investor stakeholders’ responses. I exploit a disclosure regulation
enacted by California in 2012, which mandates that firms disclose how they conduct due
diligence to combat their suppliers’ labor abuse. I find that affected firms increase their
due diligence, and that firms with more (less) due diligence experience an increase (decrease)
in market share. The effect is stronger when firms’ disclosures are monitored by
activist groups (e.g., NGOs), when customers have greater incentives to use the newly
disclosed information, and when the law leads to a larger increase in...[
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Essay I: The Real Effects of Mandatory Nonfinancial Disclosure:
Evidence from Supply Chain Transparency
I study whether and how mandatory nonfinancial disclosure affects firms’ real decisions
by leveraging non-investor stakeholders’ responses. I exploit a disclosure regulation
enacted by California in 2012, which mandates that firms disclose how they conduct due
diligence to combat their suppliers’ labor abuse. I find that affected firms increase their
due diligence, and that firms with more (less) due diligence experience an increase (decrease)
in market share. The effect is stronger when firms’ disclosures are monitored by
activist groups (e.g., NGOs), when customers have greater incentives to use the newly
disclosed information, and when the law leads to a larger increase in information comparability.
Collectively, the results suggest that mandatory nonfinancial disclosure can
affect firms’ real decisions through market mechanisms and that stakeholder responses
play a key role.
Essay II: Financial Restatment and Vertical Integration
Firms that benefit from strategic supply-chain partnerships generally make nontransferable
investments. Financial restatement by strategic partner organizations, however,
indicates mismanagement that puts such investments at risk. Firms are expected to address
this risk by acquiring their counterparts. Consistent with this intuition, firms that
suffer from restatements are more likely to become the targets of vertical integration. Different
comparative statics are consistent with the notion that these acquisitions are made
to remove the risk of economic distress induced by the mismanagement of strategic partners.
The effect is stronger when targets are more likely to suffer from economic distress,
are more economically important to the acquirer, and exhibit worse internal monitoring.
Acquirers’ economic uncertainty is subsequently reduced, and stock price reactions reflect
the expected synergies of such acquisitions. Overall, the results suggest that these integration
strategies are successful at removing business risks for the acquirer created by a
counterpart’s agency problem.
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